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Divisive by design shaping values In optimal mechanisms

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  • Prummer, Anja
  • Nava, Francesco

Abstract

We study a principal who allocates a good to agents with private, independently distributed values through an optimal mechanism. The principal can strategically shape these value distributions by modifying the good's features, which affect agents' valuations. Our analysis reveals that optimal designs are frequently divisive-creating goods that appeal strongly to specific agents or agent types while being less valued by others. These divisive designs reduce information rents and increase total surplus, at the expense of competition. Even when total surplus is constrained, some divisiveness in designs remains optimal.

Suggested Citation

  • Prummer, Anja & Nava, Francesco, 2025. "Divisive by design shaping values In optimal mechanisms," Discussion Papers 2025/5, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:323229
    DOI: 10.17169/refubium-48013
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    References listed on IDEAS

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    1. Ma, Marshall Xiaoyin & Noussair, Charles N. & Renneboog, Luc, 2022. "Colors, Emotions, and the Auction Value of Paintings," European Economic Review, Elsevier, vol. 142(C).
    2. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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